In today’s volatile markets, witnessing a company lose $1 trillion in market cap is a rare event. Yet, Nvidia (Nasdaq: NVDA) managed to do just that, and astonishingly, it remains the second-largest company on the US stock market.
Despite its colossal tumble of 29% from its peak in January, Nvidia still outperformed the Nasdaq, which plummeted by 13% in just three weeks.
###Cheap chip maker?
Over the past five years, Nvidia has soared by a staggering 1,665%, an impressive feat in the tech sector. Even with this exceptional growth, its valuation still falls short of tech giants in their prime.
Recent projections indicate Nvidia’s stock is set to have a price-to-earnings (P/E) ratio of 25 for the 2025-26 financial year with expected earnings upticks aiming to lower it to under 20 the year after. This places Nvidia in a better position than the UK’s Rolls-Royce Holdings, which forecast a P/E of 31. The global demand for AI chips is anticipated to surpass the demand for aero engines, positioning Nvidia as a potentially lucrative investment.
###Early mover disadvantage
Amid the escalating demand for chips and the ongoing supply shortages in the data centre realm, Nvidia stands to benefit from premium pricing and robust profit margins. However, an artificial inflation of stock prices due to imbalances in supply and demand raises concerns. History suggests that markets tend to rectify such imbalances, and as competitors strive to bridge the gap, Nvidia might face increased competition and potentially reduced margins in the foreseeable future.
###How much growth
Despite its remarkable rise, Nvidia exceeded expectations in its recent fourth-quarter report with a 78% increase in revenue and an 82% surge in earnings per share. CEO Jensen Huang hailed the demand for Blackwell chips as phenomenal, citing the rapid evolution of AI technology.
The tech world is abuzz with optimism, drawing parallels to the dot com bubble of the past. While Nvidia has the potential to lead the AI revolution, caution is advised, as even the largest players can experience significant setbacks when unforeseen challenges arise.
In conclusion, while Nvidia’s future looks promising, investors should exercise prudence and stay informed in the rapidly evolving tech landscape. The road ahead may be fraught with challenges as competition stiffens and market dynamics shift, making sound investment decisions all the more crucial.
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